Why Most Traders Fail

Welcome to the biweekly stock barometer. This article comes out every 2
weeks and gives our big picture view of the market. If you're interested
in following our signals and learning more about our system, then I
invite you to click here and subscribe to the daily service - since
the market can turn on a dime and so too can our interpretation as the market
gives its daily clues to the future. Or sign up for our free
weekly newsletter, where we provide up to date articles from our
various trading services. We're also going to be releasing a free trading
video in 2007 - so sign up today.

Most fail as traders. Why?

Well, this is a topic that we could spend a while talking about, so I'll just
covera few points here.

They lack the discipline required to trade. Discipline is essential to trading.
You should treat it like a business. It always amazes me how much research
a person will do when they're spending $1000 on a fridge. But when it comes
to buying a stock, one hot tip and they're in with $5000. Discipline is having
a set plan, doing your research and following that plan to a T.

They lack the patience required to trade. Patience is definitely a virtue
when it comes to making the decision when to trade. And that includes when
to buy, when to sell and when to apply your stop. Most people think that you
should trade every day, when in fact, unless you're a day trader, there are
times when you should be buying and selling, and then there are times when
you need to just sit back and watch. Knowing those times will do you wonders.
Having the patience not to trade is critical to your success. There's no good
in trying to buy a rally that's extended or sell a downturn that's about to
bottom.

They don't know how market works. This is one area where we can help you out.
But if you don't understand that the market moves in waves of buying and selling
and don't have some method for reading those waves, then you're missing a key
element of understanding how the market works. I can't tell you how many people
come to my beginner classes and say they get their ideas from CNBC. Big mistake.
This is not trading. Think about it, they talk about a hundred or more stocks
a day - even Cramer on his Sad Money - excuse me - Mad Money show makes about
38 recommendations a show. That's ridiculous.

They don't have a plan. To me it's all about the plan. And this is the basis
of my beginner classes. I teach them how to read a chart and how to interpret
the market and figure out which style fits best with current market conditions
and finally how to set up a basic trading plan. What to buy, when, at what
price and when to sell and how to apply your stop loss.

They don't know the difference between Trading and Investing. This is another
area where new traders fail. They turn their bad trades into investments. They
buy a stock - thinking they'll sell it when they make some money. It goes down
and they then rationalize that it's a good company and they'll hold on to it
as an investment. Even worse, they exacerbate the situation by buying more.
And as it continues to go down, they continue to buy more. Eventually the stock
becomes a penny stock and they vow never to trade again. And they shouldn't.
That's not trading - it's more akin to investing. But even in investing, you
shouldn't reward your losers, but reward your winners with reinvestment.

Think about it - who Takes more risk? The trader or the investor? From the
trader's point of view, an investor who buys and holds is crazy. They tie up
their capital for long periods and hope that the company will do well and the
stock price will reflect that. From the investor's point of view, the trader
is crazy. They think they can figure out what to buy, when to buy, when to
sell and so on.

Usually market conditions will periodically favor trading over investing.
For example, we've seen a strong trending move in the markets since July. But
if you think about it, the Qs are only 2 points above their high from earlier
in the year. Big trending up-moves favor investors. Traders like and perform
best in sideways markets (depending primarily on their style).

That's it - just an excerpt of what I cover in my stock trading 101 class.

On to the charts.

Message From The Markets

Market action is ruled by sentiment and by monitoring market internals
and studying sentiment; you can gain reasonably predict future market movements.
The basis of the Stock Barometer system is overlaying extremes in sentiment
with sound technical analysis to predict the likelihood of future price movement.
Each indicator and chart measures the hope, fear and greed of investors and
traders from different angles. Follow along with my charts and over time,
you'll also learn to understand how to read the markets, which is essential
prior to setting up each and every trade.

STOCK BAROMETER CHART

The Daily Stock Barometer is a proprietary measure of market energy. The
direction of the stock barometer determines our short-term outlook on the
market's direction. A BUY or SELL signal is triggered when the indicator
clearly changes direction. If the line is moving up, we are in BUY MODE
and if it's moving down, we are in SELL MODE. The black line is a 5-day moving
average that we use to confirm changes in direction.

EQUITY PUT CALL RATIO CHART

The CBOE put/call ratio is comprised of two sets of data; equity options
and index options. The index component contains items that are used as a
hedge, thereby distorting the correlation and interpretation of the indicator.
I use the equity put/call ratio. This is one of the most accurate read of
investor's fear and complacency.

TRIN/ARMS CHART

Richard Arms developed the arms index. It is also referred to the Trading
Index or TRIN for short. It is a measure of the ratio of up stocks and down
stocks divided by the ratio of up volume and down volume. Our Spread Chart
converts the arms index data into momentum Buy and Sell Signals.

TICK CHART

The tick index is represents the sum of all stocks ticking higher minus
all stocks ticking lower (a stock is said to be trading on an up tick when
it trades at a higher price than the last sale). It's utilized as a day trading
tool as it gives you an up to the second read of the intensity of buying
and selling.

BREADTH (ADVANCE - DECLINE) CHART

Each day several thousand stocks either advance, decline or remain unchanged.
The number of advances and declines normally ranges from +2500 to -2500.
A high number of advancing stocks normally marks a top just as a high number
of declining stocks normally marks a bottom. Monitoring the 5 and 13-day
moving averages of this allows us to better predict future prices.

VXO CHART

The VIX is a measure of volatility on options pricing. We use the old VIX,
which is now called the VXO. The higher the volatility, the more likely the
market is close to a bottom, as traders are willing to pay more premium for
puts, which act as Insurance on their long positions.

Cycle Time

Monday is day 2 in our Up Cycle.

The Stock Barometer signals tend to follow a 5, 8 and 13 and sometimes
21 day Fibonacci cycle that balance with 'normal' market cycles. Knowing
where you are in the current market cycle is important in deciding how long
you expect to maintain a position.

The market appears to have bottomed 11/28 and should rally through the new
year.

My timing work is based on numerous cycles and has resulted in the above
potential reversal dates. They're predictive and have nothing to do with
the barometer cycle times. However, due to their accuracy in the past, I
post the dates here.

QQQQ or SPY Chart: A chart is provided in every bi-weekly report and shows
the barometer Buy and Sell Signals (which are provided in my morning updates)
as well as showing the next highlighted 'reversal' window. The numbers adjacent
to the buy and sell signals are the number of days between signal (cycle
time).

Here's one years of our end-of-day buy and sell signals for the Stock
Barometer over the past year. They're marked on the QQQQ chart with red and
blue lines (or red and blue arrows).

•

1/10

PROJECTED BOTTOM (18 Days)

•

12/14

BOTTOM (0 days)

•

11/24

TOP (0 days)

•

11/14

CLOSE/CASH (9 days)

•

11/01

TOP (18 days)

•

10/26

BOTTOM (18 days)

•

10/2

TOP (4 days)

•

9/26

BOTTOM (14 days)

•

9/6

TOP (15 days)

•

8/15

BOTTOM (4 days)

•

8/9

TOP (12 days)

•

7/24

BOTTOM (10 days)

•

7/10

TOP (29 days)

•

5/26

BOTTOM (33 days)

•

4/10

TOP (8 days)

•

3/29

BOTTOM (6 days)

•

3/21

TOP (5 days)

•

3/14

BOTTOM (10 days)

•

2/28

TOP (8 days)

•

2/15

BOTTOM (23 days)

•

1/12

TOP (6 days)

•

1/04

BOTTOM (31 days)

•

11/29

TOP (28 days)

•

(historical reversal dates and performance figures
are published at the bottom of the home page and updated annually)

The following work is based on my price based spread/momentum indicators for
the USD$, XAU, GLD and TLT. They are tuned to deliver signals in line with
the Stock Barometer. Combined with up/down indicators and you have a powerful
tool for pinpointing market reversals.

Gold (GLD:AMEX & INDEX:XAU.X)

I monitor Gold in the form of GLD and the XAU as well as the US Dollar
Index as a general guide to the overall health of the US Economy and the
markets, as well as to assist us in the entry of positions in our Gold Stock
Service.

Bonds (Amex:TLT)

I include bonds in our studies and use Lehman's 20 year ETF, as the direction
of bonds can have an inverse impact on the stock market. Normally, as bonds
go down, stocks will go up and as bonds go up, stocks will go down.

Summary & Outlook

We remain in Buy Mode looking for the market to continue higher for the rest
of the year and into January. That move appears clearer on the NYSE - but the
Nasdaq is just about to break out to new highs.

Again, if you're new to the biweekly stock barometer, welcome. This article
comes out every 2 weeks and gives a big picture view of the market and our
recent activities. If you're interested in following our signals and learning
more about our system, then I
invite you to click here and subscribe to the daily service - since
the market can turn on a dime and so to can our interpretation as the market
gives its daily clues to the future. Or sign up for our free
weekly newsletter, where we provide up to date articles from our various
trading services. We're also going to be releasing a free trading video in
2007 - so sign up today.

Stock Barometer is completely independent. We have never and will
not ever accept compensation from any company whose stock we recommend.

Our goal is to make you money. We offer you the tools and information to
do so and leave it to you, the individual investor, to apply them in the best
way possible.

Important Disclosure: Futures, Options, Mutual Fund, ETF and Equity
trading have large potential rewards, but also large potential risk. You must
be aware of the risks and be willing to accept them in order to invest in these
markets. Don't trade with money you can't afford to lose. This is neither a
solicitation nor an offer to buy/sell Futures, Options, Mutual Funds or Equities.
No representation is being made that any account will or is likely to achieve
profits or losses similar to those discussed on this Web site. The past performance
of any trading system or methodology is not necessarily indicative of future
results.

Performance results are hypothetical. Hypothetical or simulated performance
results have certain inherent limitations. Unlike an actual performance record,
simulated results do not represent actual trading. Also, since the trades have
not actually been executed, the results may have under- or over-compensated
for the impact, if any, of certain market factors, such as a lack of liquidity.
Simulated trading programs in general are also subject to the fact that they
are designed with the benefit of hindsight. No representation is being made
that any account will or is likely to achieve profits or losses similar to
those shown.

Investment Research Group and all individuals affiliated with Investment Research
Group assume no responsibilities for your trading and investment results.

Investment Research Group (IRG), as a publisher of a financial newsletter
of general and regular circulation, cannot tender individual investment advice.
Only a registered broker or investment adviser may advise you individually
on the suitability and performance of your portfolio or specific investments.

In making any investment decision, you will rely solely on your own review
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For a complete understanding of the risks associated with trading, see our Risk
Disclosure.